Case Roundup

New rulings have been issued on: (1) the U.S.-China income tax treaty teacher compensation exemption; (2) whether an employer can pay nurses at different pay rates depending on how many hours they work; and (3) whether employees may be compensated for donning and doffing time during a meal break.

U.S.-China income tax treaty teacher compensation exemption. In Liaosheng Zhang v. Commissioner, (2011) TC Memo 2011-118, the U.S. Tax Court ruled that Chinese citizen Liaosheng Zhang, who was a computer programmer/researcher working for an employer in the U.S., did not qualify for the federal income tax exemption in Article 19 of the U.S.-China income tax treaty. Under Article 19, remuneration that a resident of one country receives for teaching, lecturing, or researching at an accredited educational or scientific research institution in the other country during a visit of three years or less is exempt from tax by the other country. The exemption applies only if teaching, lecturing, or research was the primary purpose of the visit.

In issuing its ruling, the Tax Court noted that the exemption in Article 19 is available only for persons who are “temporarily present” in the United States. After visiting around 1988, Zhang moved to the U.S. in 1990 and has resided in the U.S. ever since. She completed her studies in 1998, worked for a U.S. employer from 1998 to 2005, and moved from Phoenix to Seattle in 2005. The Tax Court said there was no indication that either she or the company intended her employment to last only a short time, and Zhang did not claim to have had any plans to move out of the United States. The Tax Court determined that by 2003, 2004, and 2005, Zhang's presence in the U.S. could no longer be considered temporary.

Payment of nurses at different pay rates. The U.S. Supreme Court will not review a U.S. Court of Appeals for the Ninth Circuit ruling that a hospital did not violate the Fair Labor Standards Act (FLSA) by allowing nurses to work a 12-hour shift (rather than an 8-hour shift) in exchange for receiving a lower base hourly salary that at all times exceeded the minimum wage rate. The nurses were paid time-and-a-half pay for hours worked in excess of eight per day [Parth v. Pomona Valley Hospital, U.S. Sup. Ct., cert. denied, Dkt. No. 10-1041, 5/23/11].

In issuing its ruling, the Ninth Circuit noted that the 12-hour shift scheduling practice was first initiated by the nurses so they would have more days away from the hospital. The new practice was then memorialized into a collective bargaining agreement after negotiations between the nurses' union and the hospital (again initiated at the nurses' request). The court said that there was nothing in federal law or public policy that supported the invalidation of this arrangement.

Donning and doffing compensation. The U.S. Court of Appeals for the Fourth Circuit has ruled that poultry workers may be compensated for the donning and doffing of protective and sanitary gear at the beginning and end of their work shifts, but they cannot be compensated for such time during their mid-shift meal breaks [Perez v. Mountaire Farms, Inc., CA4, Dkt. No. 09-1917, 6/7/11].

In IBP, Inc. v. Alvarez, 546 U.S. 21, 11/8/05, the U.S. Supreme Court determined that activities performed either before or after the regular work shift are compensable under the FLSA “if those activities are an integral and indispensable part of the principal activities.” The Fourth Circuit concluded that the pre- and post-work donning and doffing time were an integral and indispensable part of the poultry workers' principal activities because the employees were required as a matter of federal law to wear certain protective gear on the production line. These legal requirements are based on United States Department of Agriculture regulations about sanitation, and on safety regulations issued by the Occupational Safety and Health Administration (OSHA). The Fourth Circuit also noted that the activities primarily benefited the employer by: (1) protecting the products from contamination; (2) helping to keep workers' compensation payments down; and (3) reducing missed work time.

The Fourth Circuit denied compensation on the mid-shift donning and doffing time based on its ruling in Sepulveda v. Allen Family Foods, Inc., CA4, Dkt No. 08-2256, 12/29/09. In Sepulveda, the Fourth Circuit held, as a matter of law, that acts of donning and doffing occurring before and after employees eat their meals are non-compensable because these acts are part of the “bona fide meal period” under 29 CFR 785.19. Bona fide meal periods are not work time.